Adjustable-rate mortgages and car loans could become more expensive after the Federal Reserve raised its benchmark interest rate for the first time since 2023.
The US central bank approved a quarter-point increase on Wednesday, September 16, taking its target range to between 3.75% and 4%. The move is intended to bring stubbornly high inflation back towards the Fed’s 2% target.
Borrowers with adjustable-rate mortgages are likely to feel the impact as lenders respond to higher short-term funding costs. The increase could also feed through into auto finance, potentially raising the cost of monthly repayments for new and used car buyers.
The Associated Press reported that the decision may make borrowing more costly across the economy, including for homes, vehicles and credit cards. Savers, however, could see improved returns on some deposit accounts as financial institutions adjust their rates.
In its policy statement, the Federal Reserve said inflation remained elevated and that economic activity was expanding at a solid pace. Officials indicated that further rate increases remained possible, with their latest projections pointing to a higher policy rate by the end of 2026.
The effect on individual borrowers will depend on the terms of their loan, how quickly lenders pass on the increase and wider movements in financial markets.
